Federal tax law section 179D provides significant tax deductions for building owners—and, in certain circumstances, building designers, for new or renovated commercial buildings that meet certain energy saving standards.This deduction was set to expire at the end of 2020; however, it was instead made permanent and signed into law December 27, 2020 as part of the Consolidated Appropriations Act 2021 spending bill. The deduction is for qualified commercial buildings with energy efficient lighting, heating-ventilation-air conditioning (HVAC), hot water, and building envelope systems that have been placed in service.
What systems currently qualify for this deduction?
Three categories are included in the energy savings standards:
- Building envelope (roof, windows, insulation, ceilings, etc.)
- Heating, ventilation & air conditioning (HVAC) and hot water systems
- Interior lighting fixtures
Who currently qualifies?
- Commercial building owners
- Designers of Federal, State or Local government-owned facilities: architects, engineers, contractors and others
Each one of these elements has the potential of a tax deduction of up to $0.60 per square foot for a possible total of $1.80 per square foot. The actual deduction received will depend on energy savings of the components in the final design.
The Commercial Building Energy Efficiency Tax Deduction— Section 179D refers to the Department of Energy (DOE) and Internal Revenue Services’ (IRS) collaborative effort to provide significant tax deductions for building owners and, for government buildings, the building designers—for new or renovated commercial buildings.
Here are a few examples of potential deductions:
| Building Size (sq ft) |
Envelope (up to $0.60/sf) |
HVAC & HW (up to $0.60/sf) |
Lighting (up to $0.60/sf) |
Maximum potential deductions |
| 20,000 | $12,000 | $12,000 | $12,000 | $36,000 |
| 50,000 | $30,000 | $30,000 | $30,000 | $90,000 |
| 80,000 | $48,000 | $48,000 | $48,000 | $144,000 |
| 100,000 | $60,000 | $60,000 | $60,000 | $180,000 |
| 200,000 | $120,000 | $120,000 | $120,000 | $360,000 |
| 500,000 | $300,000 | $300,000 | $300,000 | $900,000 |
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